Courtney Saaf

The Election’s Market Impact

With polls indicating a very tight presidential race, investor skepticism loomed as last week’s election approached, driven largely by concerns over potential delays in confirming a clear winner. Fortunately, results came sooner than expected and with a decisive outcome. In response, markets were propelled higher. The surge in stock prices has been attributable to Donald Trump’s win, as it is believed his administration will promote pro-growth domestic policies and relatively easier regulation. However, the market rally may just as well have been a sigh of relief over a clear outcome. 

While stock performance statistics vary under different presidential administrations, much of the market’s happenings are beyond the control of any one President or Congress. Any political party taking credit for market performance tends to be oversimplified.

How The Trump Presidency May Affect Your Portfolio

So, what might a Trump presidency mean for your portfolio and financial planning? It may be too early to make precise predictions, but there are a few assumptions we can make based on his campaign.

Government spending, national debt, and tax policy come to mind as significant factors. While Trump’s administration may be perceived as pro-business, his first term revealed a tendency toward increased government spending, driving up the national debt. This has played out recently with a rise in government bond yields. U.S. Treasuries no longer carry the perceived safety they used to thanks to rapidly rising debt levels, pushing bond yields higher as investors seek compensation for added risk. Given these dynamics, in our view, bonds may not provide the most favorable returns over the next several years nor the same amount of safety or diversification in investment portfolios as they have over the past several decades. We remain very optimistic in our stock market outlook. The current bull run may slow, but we do not foresee any reason for it stopping, absent an unforeseen, large-scale event.  

Great attention should also be paid to tax policy. The tax cuts initiated during Trump’s first term in office as part of the Tax Cuts and Jobs Act of 2017 are set to expire at the end of next year. With Congress likely to be in step with the President, there’s potential for these cuts to be extended or made permanent. However, this does not mean that taxes will remain lower indefinitely. Under its current trajectory, the debt will eventually become crippling, and at some point, the bill will come due. The most probable way for the federal government to bring in more revenue is to raise taxes since spending cuts seem unlikely.

Looking Ahead

With the election now in our rear-view mirror, we turn our attention to the year ahead. The stock market has delivered strong returns throughout 2024, and we fully anticipate that stocks will maintain positive momentum, continuing to rally through year-end. The Federal Reserve’s expected interest rate cuts next year would further ease monetary policy, providing a stock market tailwind. However, if inflation rebounds—a strong possibility if government spending continues or new tariffs are imposed—the Fed may be forced to reverse course.

While the market has soared in the short time since the election, it is important to stay focused on the long term. Stock market performance tends to have a very weak correlation with which political party is in office. Instead, focus on how specific actions taken by elected leaders may impact your retirement planning and broader financial strategy. As always, to look specifically at your portfolio, and for example, how taxes and bond yields may impact it, give us a call: 952-460-3290.